Trade promotions cycle inventory

Understand the impact of trade promotions on lot size and cycle inventory. Trade promotions increase inventory and total supply chain costs through forward buying, which shifts future demand to the present and creates a spike in demand followed by a dip. The increased variability raises inventories and costs. 

Understand the impact of trade promotions on lot size and cycle inventory. 

Next we discuss trade promotions and their impact on lot sizes and cycle inventory in the supply chain. 

Trade promotions lead to a significant increase in lot size and cycle inventory because of forward buying by the retailer. This generally results in reduced supply chain profits unless the trade promotion reduces demand flnctnations. 

Faced with a short-term discount, it is optimal for retailers to pass through only a fraction of the discount to the customer, keeping the test for themselves. Simultaneously, it is optimal for retailers to increase the purchase lot size and forward huy for future periods. Thus, trade promotions often lead to an increase of cycle inventory in a supply chain without a significant increase in customer demand. 

Our previous discussion supports the claim that trade promotions generally increase cycle inventory in a supply chain and hurt performance. This realization has led many firms, including the world s largest retailer, Walmart, and several manufacturers, such as P G, to adopt everyday... 

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